How Designated Non-Financial Businesses and Professions (DNFBPs) Contribute to AML Compliance?

The Financial Action Task Force (FATF) recognized the exploitation of Designated Non-Financial Businesses and Professions (DNFBPs) by criminals for promoting their illicit activities like “money laundering and terrorist financing” and concealing their illegal funds.

FATF proposed 40 recommendations with the intent to prevent financial and nonfinancial sectors from financial crimes and preserve the integrity of the financial system. Countries are mandated to follow these recommendations to ensure AML/CFT compliance.

DNFBPs involve a large number of transactions and deal with high-value assets that increase the vulnerabilities of DNFBP. FATF aimed to close the AML regulatory gaps that had been created due to having less regulatory oversight.

Extending AML/CFT obligations on DNFBPs promotes security and transparency of the overall financial ecosystem. Moreover, businesses protect themselves from reputational damage.

FATF has made several modifications to its recommendations, particularly in October 2021. It made changes in Recommendation 23, which requires DNFBPs to fulfill the AML/CFT requirements.

DNFBPs comply with FATF’s recommendation “to detect, assess, and mitigate risks associated with financial crimes, including money laundering, terrorist financing, and proliferation financing.

Before all that, one key question needs to be answered to understand the role and significance of  DNFBP in AML compliance: What are Designated Non-Financial Businesses and Professions (DNFBP)?

Let’s explore the importance of DNFBP in maintaining the financial system’s integrity by ensuring AML/CFT compliance.

What are Designated non-financial businesses and professions DNFBPs?

What does DNFBP stand for?

The term DNFBP-“designated non-financial businesses and professions” first appeared in the FATF 40 Recommendations in October 2003.

Its scope has been broadened by the FATF 2012 Recommendations and, recently, by the Fifth Anti-Money Laundering Directive (5MLD), which includes Virtual Asset Service Providers for crypto and virtual currency.

As per FATF’s glossary, DNFBP meaning in AML compliance can be understood as;

“A wide range of businesses and professions are indirectly involved in financial activities, such as real estate, lawyers, and accounts. The financial sector engages directly with financial activity, such as banks. Both sectors must follow AML/CFT obligations to safeguard the financial system from money laundering and terrorist financing risks.”

As per the FATF’s 40 recommendations report, DNFBP Examples are mentioned below:

“casinos, real estate agents, dealers in precious metals and stones, lawyers and other, notaries, other independent legal professionals, accountants, trust and company service providers.”

FATF Recommendations and Requirements for DNFBPs

Money launderers misuse DNFBPs to mask their illicit funds by integrating their illegal money into legitimate transactions and hiding the source of origin.

Criminals can fund their terrorist activities by using DNFBPs to conceal their illicit funds and hide the purpose and origin of the funds.

The primary legislation governing AML compliance for DNFBPs are the “Corruption, Drug Trafficking, and Other Serious Crimes Act (Confiscation of Benefits), 1992 (‘CDSA’) and the Terrorism (Suppression of Financing) Act, 2002 (TSOFA).

FATF published its recommendations for DNFBPs to participate in efforts worldwide to combat financial crimes and stay AML compliant.

Recommendation 12: Customer Due Diligence and Record-Keeping

By following “Recommendation 12 of FATF,” Designated non-financial businesses and professions are required to apply Customer due diligence (CDD) measures and maintain a record of required information for a particular time under certain specific situations.

As per the “Recommendations 10, 11, 12, 15, and 17” of FATF, DNFBPs such as Casino must apply CDD for clients engaged in financial transactions that are “equal or exceed the designated threshold.”

Likewise, real estate agents must fulfill CDD requirements when purchasing or selling properties, particularly when financial transactions “exceed the threshold or are equal to the designated threshold.”

Trust and Company Service Providers apply CDD measures “when involved in transactions when Offering a registered office, business or administrative address” for a business. Legal arrangement.”

Recommendation 16: Other Measures of DNFBP

According to Recommendation 16, “lawyers, notaries, and legal professionals” must detect and report suspicious transactions when dealing with high-risk clients or acting on “behalf of a customer or for a customer.” Recommendation 22(d) also mentions the financial activities responsible for this obligation.

The same obligation is applied to Dealers in Precious Metals to detect and report unusual activity or suspicious transactions equal to or above the designated thresholds.

Suspicious reporting requirements for “Trust and Company Service Providers” are highlighted in Recommendation 22(e).

Recommendation 17:  Implementation of Sanctions

According to FATF’s 17 recommendation, countries are subjected to impose fair and strict sanctions when dealing with “natural or legal persons.” The 6 and 8 to 23 FATF recommendations mention the AML penalties, such as freezing assets linked with illicit activities.

Failure to comply with AML/CFT leads to “Criminal, civil, and administrative penalties.” Irrespective of their authority or role, the law for imposing sanctions is the same for everyone and is not limited to “only financial institutions or DNFBPs.”

Recommendation 24:  Regulation and Supervision of DNFBPs

Recommendation 24, “Regulation and Supervision of dnfbps,” mandates that casinos must operate with a license to enhance AML regulatory oversight.

Following these recommendations, illegal activities such as “holding significant or controlling interests, posing as beneficial owners, or holding management positions within the casinos” can be prevented.

Implementations of AML regulations in DNFBPs, such as a risk-based framework with a robust transaction monitoring system, are supervised by a self-regulatory body (SRB) or government authority to ensure they comply with the AML/CFT regime.

The exploitation of Casinos is prevented by applying “fit and proper criteria on individuals to assess their suitability for involvement in DNFBPs.”

Per “Recommendation 35”, sanctions can be imposed for breaching AML/CFT requirements.

Recommendation 25:  DNFBP Guidelines and Feedback

Recommendation 25, “Guidance and Feedback,” mandates “authorities, supervisors, and SRBs” to create DNFBP guidelines. According to those established guidelines, AML obligations will be fulfilled.

Deliver feedback to help “financial institutions and designated non-financial businesses and professions” to conduct AML/CFT measures effectively to combat illicit activity such as “money laundering and terrorist financing,” especially identifying and reporting “suspicious transactions.”

AML Obligations and Requirements for DNFBPs

Designated Non-Financial Businesses and Professions (DNFBPs) are required to comply with Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT) regulations, which may vary based on the specific needs of countries to combat illicit activities such as money laundering and terrorism financing.

Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD)

• DNFBPs are mandated to conduct Customer Due  Diligence (CDD) to verify the identity of their client and involved beneficial owners.
• DNFBs must conduct enhanced due diligence Enhanced Due Diligence dealing with higher-risk entities such as Politically Exposed Persons (PEPs) and sanctioned entities.

Risk Assessment

• Risk-based approaches are applied to high-risk countries, and ongoing customer monitoring is established to detect any changes in risk levels.
• Risk assessments should align with business requirements, such as identifying and assessing client profiles and geographic risks.
• Regularly review the risks associated with clients to minimize risks effectively.

Screening of PEPs and Sanctioned entities

• Transactions involving virtual currencies must comply with specific regulations set by relevant authorities.
• Transactions are subject to PEP and sanction screening to detect higher risks associated with sanctioned individuals in business relationships.
• Transactions that facilitate prohibited goods or assets should be monitored to stop illicit financial flows and mitigate risks associated with financial crimes.

Monitoring and Reporting

• DNFBPs must identify by ongoing monitoring and report unusual activities or patterns in financial activities labeled as “Suspicious Transactions” and report them to relevant authorities such as “FIU.”

Cooperation with regulatory authorities is encouraged as DNFBPs collaborate with others to “respond to inquiries” and deliver information upon requesting audits and reviews.

Record keeping

• Maintain a record of transactions, CDD, EDD, and related information for a specific time as a record-keeping obligation.

Internal Controls and Policies

• Establish AML compliance programs that align with risk levels and requirements.
• Establish an internal controls and policies framework for DNFBPs by applying procedures and approaches such as record-keeping to provide data on risk assessment of clients upon asking.
• Designate a compliance officer and perform regular risk assessments.
• Continuously review and update the AML/CFT programs.

Review and Update

• Stay updated with AML/CFT regime changes to apply best practices to challenges and establish policies and procedures to combat financial crimes.
• Conduct Training programs to make employees aware of AML/CFT requirements.

Designated Non-Financial Businesses and Professions (DNFBPs) are under increasing regulatory scrutiny to avoid money laundering and financial crimes. With advanced advanced screening solutions, DNFBPs can face these difficulties head-on.

AML Watcher Empowers DNFBPs to Stay Ahead of Compliance Risks

AML Watcher offers a comprehensive AML screening solution designed to meet the AML compliance requirements of Designated Non-Financial Businesses and Professions.

Sector-Specific Adaptability

Whether you work in real estate, legal services, luxury items, or casinos, AML Watcher tailors its capabilities to your specific business industry, giving solutions that meet your operating demands.

It allows DNFBPs to properly screen customers and transactions while adhering to AML/CFT requirements by offering access to over 100,000 data sources, including worldwide sanctions lists, watchlists, and adverse media.

Key features of DNFBP compliance include:

Sanctions Screening

Consolidated, up-to-date sanctions data from over 200 global sanction regimes, enhanced with aliases and entity linkage, allowing for thorough screening of individuals and businesses.

Watchlist Screening

Access to a comprehensive dataset of Special Interest Persons (SIPs) and Special Interest Entities (SIEs) from over 1,300 official watchlists, which helps in the detection of high-risk linkages.

Adverse Media Screening

Monitoring of over 5,000 reputable and local media sources using intelligent tagging and natural language processing to trace negative news related to clients, supporting proactive risk management.

Politically Exposed Person (PEP) Screening

Under its PEP screening, a single database containing over 1.3 million PEP profiles from 235+ nations and states helps detect and manage PEP-related risks.

Real-time Screening

Stay informed with real-time updates about changes to sanctions, watchlists, or media mentions. AML Watcher keeps DNFBPs constantly informed, allowing them to act quickly and maintain compliance without missing a beat.

Dynamic Risk Scoring

Assign risk rankings that change with new data. AML Watcher prioritizes high-risk entities, allowing DNFBPs to focus on what is truly important while securely handling regular transactions.